The performance of unit trusts in kenya

Abstract

This study aims at evaluating the performance of unit trusts in Kenya in terms of the risk/return tradeoff and comparison with the benchmarks namely the NSE 20 Share Index and the 91 day treasury bill rates. The first unit trust scheme was registered in 2002 and since that time there has been phenomenal growth in the market in terms of share trading volumes, market capitalization and share prices including the tremendous growth of these funds with numerous being registered on an annual basis. Unit trusts as a form of collective investment scheme (CIS) play the vital role of pooling small investor funds and diversifies the portfolios to the benefit of investors. The study focused on registered unit trusts categorized as ~oney market and equity funds as at September 30, 2006, mainly due to fact that they were the predominant category of funds representing the extreme ends of the investment spectrum. The population is made up of funds held by three fund managers namely African Alliance Kenya Management Ltd, British American Assets Managers and Old Mutual Inv~stments Services. As at 30 September 2006 there were only three managers that had been li•c.ensed and approved to manage CIS funds. To balance out and make the sample representative, two funds of each category were selected from each of the three fund managers. In the analysis and evaluation, the performance of the funds was compared against standard benchmarks namely the 91 day treasury bills rates and NSE 20 Share Index using the Information Ratio. The returns and risks of each of the six funds and their benchmarks were calculated and compared. The coefficient of variation was also used to determine the category of fund(s) that gave the better risk/return. IV